Tuesday, May 2, 2006

Deutsche Telekom Outlines Growth Strategy

"We are Europe's No. 1 and are determined to remain so," Deutsche Telekom's CEO Kai-Uwe Ricke emphasized at the company's shareholders' meeting in Cologne on Wednesday.

2005 was the best financial year in Deutsche Telekom's history. DT Group revenue rose 3.9 percent to EUR 59.6 billion and adjusted EBITDA grew by 5.7 percent to EUR 20.7 billion. Improved earnings also fed through into adjusted net profit that increased by 26.7 percent to EUR 4.7 billion. Net debt was reduced by 3.2 percent to EUR 38.6 billion, further reducing the Group's debt in the process.

"In 2006, we are now moving into the phase of growth and value enhancement, a phase we will tackle actively," Ricke announced, presenting the three core areas of the strategy:

  • Organic growth of the Group;

  • Portfolio development, essentially the inorganic growth of the Group; and

  • Financial strategy.

Deutsche Telekom is undertaking a 10-point program aimed at cultural change as the company shifts to becoming a customer-oriented service provider.

The first four measures aim to defend the core business of the Broadband/Fixed Network and Mobile Communications strategic business areas in the consumer market while opening up new markets.

Strategic pricing measures will be implemented in the fixed-network business.

The company will focus on innovative broadband products and services for the mass consumer market, including the already implemented DSL portfolio, ADSL2+ and VDSL, along with the associated T-Online services like next-generation TV and video services. A key element for these products and services is the rollout of the new high-speed fiber-optic network.

In the mobile communications area, T-Mobile aims to reach a leading position in terms of mobile broadband and superb network quality with compelling prices and simple price structures. Mobile data services will also be expanded.

T-Systems will further expand its core business both with small and medium-sized enterprises and with key accounts. In addition, integrated telecommunications and IT solutions are aimed at generating sustained growth in the business customer segment.

The last four measures are geared to intelligent integration. Specifically, this involves further increasing revenue, reducing costs and promoting cultural change.

Geographically, DT plans to strengthen operations in the European countries in which its already operates, along with North America.

"We intend to play an active role in the European consolidation process," Ricke emphasized. But Deutsche Telekom will only go ahead with acquisitions if they enhance shareholder value. "The return on capital of an investment is the criterion we apply when it comes to strategic portfolio management decisions."

T-Mobile USA is currently preparing to participate in the auction for mobile communications frequencies in the USA.

For the current year, the Deutsche Telekom group expects net revenue to be between EUR 62.1 billon and 62.7 billion, and adjusted EBITDA between EUR 20.2 billon and 20.7 billion.

Regarding staff restructuring, Ricke said there will be around 6,000 new hires in new business segments and fields that are highly customer- and service-centric, such as the T-Punkt stores. On the other hand, 32,000 employees are to leave the Group, including 7,000 employees whose jobs will be outplaced from Vivento on a permanent basis.

As agreed with the trade unions, there will be no compulsory redundancies in the Deutsche Telekom AG before 2008. Job cuts will be made through voluntary arrangements, such as old-age part-time work or redundancy payments, for which Deutsche Telekom has put together a package of measures costing EUR 3.3 billion.


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